ESG roundup: UK Stewardship, UKSIF, Sarasin, The Vital Few

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GLOBAL - The UK Sustainable Investment and Finance Association (UKSIF) has called on all pension funds and sponsoring employers to demand adherence to the country's Stewardship Code after its second version was published last week.

UKSIF chief executive PennyShepherd said: "We welcome the increased emphasis on pension funds and other asset owners in the revised code. Now is the time for all pension funds to demand their managers protect the value of their investments by adherence to the code.

"In addition, all sponsoring employers should ask their pension fund to demand effective stewardship before they complain about city short-termism. With auto-enrolment starting in October, no responsible employer should place their employees' long-term savings with a fund manager who is not committed to being a good steward."

The Financial Reporting Council published revised versions of the UK Stewardship Code and the Corporate Governance Code on 28 September.

This followed a consultation, which closed in the summer of 2012.

Changes to the Stewardship Code include:

Clarification of the respective responsibilities of asset managers and asset owners for stewardship, and for stewardship activities that they have chosen to outsource Investors are to explain more clearly how they manage conflicts of interest, the circumstances in which they will take part in collective engagement, and the use they make of proxy voting agencies Asset managers are encouraged to have the processes that support their stewardship activities independently verified, to provide greater assurance to their clients

The announcement and changes to the Corporate Governance code can be found here.

In other news, Jeremy Leggett, founder and chairman of Solarcentury and convenor of the UK Industry Taskforce on Peak Oil and Energy Security, has warned of a "triple crunch".

Speaking at the Sarasin & Partners Responsible Investment Seminar 2012 in London, he predicted an oil crisis, a financial crisis and a climate crisis.

"There is a big risk debate going in the business community at the moment involving what will happen with oil as a dominant narrative," he said.

"There are huge ongoing problems in the financial sector, with the IMF's report on the state of the financial sector basically saying that, despite the raft of reforms in the wake of the 2008 crisis, the system is just as prone to crash as it was in 2007 before the credit crunch.

"All three crises are widely denied in the policy community by business people and by policymakers."

Leggett questioned the conventional oil company narrative that there was plenty of oil and that the industry would be able to respond to ever-rising demand.

"The UK Industry Taskforce on Peak Oil and Energy Security's version of this narrative is that the oil and gas industry have got this story wrong in a pretty analogous way to the investment banking community having got their narrative wrong in 2006 and 2007," he said.

Other huge systemic risks, according to Leggett, could stem from the shale gas revolution in the US that claims to add real value despite its capital intensity and the carbon bubble in the capital markets, with a third of the London Stock Exchange being weighted in value on fossil fuels.

Leggett predicted a second financial crash, but one that would not cause demand for oil to fall.

"Even in a recessionary world, in a world of depression, the rate of decline of conventional oil fields is fast, and those fields are old," he said. "They are discovering little conventional oil relative to new oil sources such as tar sands […] that there will be massive scope for an oil shock."

Lastly, in the US, a new social media platform to assist pension fund members to challenge climate risk-taking and excessive short-termism in the global financial system has been launched.

Called 'The Vital Few', the platform aims to allow pension fund members to drive transparency and accountability in a $60trn (€46.6trn) industry that has become the largest pool of investment capital in the world.

Julian Poulter, executive director of the Asset Owner Disclosure Project (AODP), said: "Sitting atop the wealth chain, the pension industry has continued its fast and furious spending spree on high-carbon, high-risk investments, with little accountability for their impact on the long-term financial security of both individuals and the broader economy.

"The Vital Few platform can be used by anybody signing up as a free member to exercise their legal rights in forcing their funds to demonstrate how they are performing their fiduciary duty in managing big systemic risks such as climate change."

The platform has been built for the online world by the AODP, an investment industry NGO currently conducting an independent survey of 1,000 pension, superannuation and sovereign wealth funds.

Pilot surveys in Australia and even industry-led surveys have shown that there is no disclosure of portfolio emission contents, inadequate management of climate risks and a massive imbalance between high and low-carbon investments.